Latency reduction and market quality: The case of the Australian Stock Exchange

Hamish Murray, Thu Phuong Pham () and Harminder Singh

International Review of Financial Analysis, 2016, vol. 46, issue C, 257-265

Abstract: This study investigates the role of latency in market quality in the Australia Securities Exchange following the introduction of the Integrated Trading Platform (ITS) and ASXTrade. We find that the reduction in system latency from 70ms to 30ms (ITS) improved liquidity. However, the lower latency has not had a long-lasting downward effect on spreads, as there was no discernible reduction in trading costs when institutional traders already had access to lower-latency co-locations. We contribute to the literature by reporting that low latency improves market liquidity, but privileged participants that have access to trading information prior to others may induce greater information asymmetry and adverse selection.

Keywords: Latency; Spreads; ASXTrade; ITS; Market liquidity (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:46:y:2016:i:c:p:257-265

DOI: 10.1016/j.irfa.2015.09.001

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